The Perils of Public Openings

This article was read into the record in the Cayman Island’s Legislature in support of a new procurement bill. To view the video of the full reading, see Procurement Office Article on Public Openings Shared in Cayman Islands Legislature. (Skip to 2:01:00 if the video doesn’t automatically load at that point for your browser.)

By Marilyn Brown

(Originally published in the Summer 2013 edition of Caveat Emptor, the magazine of the Ontario Public Buyers Association.)

It has long been assumed that public openings, where tenders are opened and bid prices are read aloud in the presence of bidders, enhance the transparency of the bidding process. But do public openings actually achieve the intended result? Unfortunately, some measures designed to increase transparency can have the undesirable effect of facilitating bidder collusion and anti-competitive practices. Evidence before the recent Charbonneau Commission investigating corrupt procurement practices in Quebec reminds us that organized crime can use the public opening process to intimidate bidders and discourage bids from suppliers who are not part of the bidding cartel. Public sector organizations need to look again at public openings.

International Opinion
A number of international sources cast doubt on the merits of public openings. The Supplement to the 2011 Annual Statistical Report on United Nations Procurement (“Ensuring integrity and competition in public procurement markets: a dual challenge for good governance”) argues that the public opening of tenders makes it much easier for a bidding ring to police its members:

While widely seen as … an anti-corruption measure, [public opening of tenders] can also facilitate collusion by enabling cartel members to determine whether co-conspirators fulfilled promises either not to bid or to submit artificially high ‘cover bids’, thereby increasing cartel stability.

“Curbing Fraud, Corruption, and Collusion in the Roads Sector”, published by the World Bank’s Integrity Vice Presidency, notes that cartel prosecutions began to decline in the 1990s where public opening of bids was abolished.

The United States Department of Justice issued an anti-trust primer — “Price Fixing, Bid Rigging and Market Allocation Schemes: What They Are and What to Look For” — which concludes that public openings favour collusion: “bidders who congregate in the same building or town to submit their bids have an easy opportunity for last minute communications.”

The OECD’s Guidelines For Fighting Bid Rigging in Public Procurement identifies signs of collusion and bid rigging, including the practice of “bring[ing] multiple bids to a bid opening and choos[ing] which bid to submit after determining (or trying to determine) who else is bidding”.

There are clearly good reasons to be skeptical about the merits of public openings. But are they required in Canada?

The Canadian Context
Although some public sector organizations in Canada have elected to provide for public openings in their internal policies and procedures, and some Canadian jurisdictions have made public openings mandatory, neither Canadian common law nor binding international or domestic trade agreements require that bids be opened in public. All organizations should confirm their obligations under their governing statues and regulations with their legal advisors, but many Canadian public sector organizations are not subject to any obligation to open bids in public.

International trade agreements, such as NAFTA and the WTO Agreement of Government Procurement, speak to the opening of tenders under procedures and conditions guaranteeing the regularity of the opening of tenders, and require retention of information on the opening of tenders, but do not require that tenders be opened in public.

Canada’s Agreement on Internal Trade provides that tender calls must include “the time and place of the opening of the tenders in the event of a public opening”, which clearly acknowledges that tenders may not necessarily be opened in public.

Neither Ontario’s Management Board of Canada’s Procurement Directive, nor the Broader Public Sector Procurement Directive require public openings, and the Broader Public Sector Procurement Directive Implementation Guidebook suggests only that bids be opened in the presence of at least one witness.

Public openings are not required under the New West Partnership Trade Agreement, the Trade and Cooperation Agreement between Ontario and Quebec, the Agreement on the Opening of Public Procurement for Québec and New Brunswick or the Atlantic Procurement Agreement.

Closing the Door
Public sector entities engaged in procurements can actually suffer from an excess of public process. While intended to facilitate fair and open competition, public opening of tenders can cause more harm than good. In the Canadian context, protection against internal corruption and impropriety in the opening of bids and the recording of bid prices is available in simple measures, such as a requirement that bids be opened and recorded in the presence of at least two individuals, including a representative of the procurement department. A less public bid opening process can sometimes result in more bidding transparency — consider closing the door to the bid opening room.